Vlieghe, Gertjan (2025) Core strength: international evidence on the impact of energy prices on core inflation. Economica. ISSN 0013-0427
Full text not available from this repository.Abstract
In the post-pandemic period, there was substantial cross-country heterogeneity in energy prices faced by consumers, due to variation in countries' energy mixes, as well as variation in government energy subsidy policies. The main contribution of this paper is to exploit this country-level variation to show that countries with higher domestic energy prices faced higher subsequent core inflation. Core inflation rises gradually after an energy shock, for a little over a year, before falling back to the pre-shock rate of inflation. We argue that in the aftermath of large energy price shocks, core inflation is not a reliable measure of underlying or persistent inflation, and should be adjusted for the predicted, country-specific, energy cost pass-through. Focusing more narrowly on services inflation rather than core inflation does not solve the problem, as services inflation responds similarly, in both magnitude and duration, to energy price shocks.
| Item Type: | Article |
|---|---|
| Additional Information: | © 2025 London School of Economics and Political Science |
| Divisions: | LSE |
| Subjects: | H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance |
| JEL classification: | E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E30 - General Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy |
| Date Deposited: | 21 Jan 2025 09:45 |
| Last Modified: | 21 Jan 2025 19:03 |
| URI: | http://eprints.lse.ac.uk/id/eprint/126952 |
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